So what’s the difference between a traditional bank and a bucket of fertilizer?
A strange question perhaps, but if some commentators had their way, the difference would be – well, just the bucket. The recent raft of scandals, controversies, alleged shonky practices, and outright financial catastrophes visited upon the local and international community beggars belief, and gives substance to Thomas Jefferson’s quote:
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson, 3rd president of US (1743 – 1826).
Of course, Jefferson couldn’t possibly have anticipated the events which have occurred in the past 5 years in the 21st century, but his words resonate with uncanny accuracy when considered in the context of the following events;
- The international financial crisis brought about by banks fuelling the corporate and residential borrowing debt excesses
- Illicit fixing of the interbank lending rate in the London market
- Ludicrous financial rewards given to departing executives while the banking organisations they led collapse
- Outrageous remuneration packages awarded to serving Executive Directors
- Class action in Australia and NZ against the excessive charging of fees – alleged to be illicit and currently in train
- Collaborative issuance of disastrous investment instruments causing massive losses to investors. An outstanding local example is ANZ/ING selling Collateralised Debt Obligations (CDOs) as similar to deposit accounts
- Selling foreign currency loans to unsuspecting borrowers – mainly in the U.K. – without adequate explanation of the risks involved.
- NZ banks being accused of suspect practices in selling Kiwisaver products by inviting clients to see their Kiwisaver account balances online – and switching their funds from the existing provider to the bank’s own product – without observing any of the protocols outlined in the regulations
- Recent reports of one of the major banks abandoning an insurance-based funding scheme for the benefit of Iwi as reported in the Sunday Star Times 14/7/03.
If you add the emergence of Co-op Bank returning $1m of profit to customers, Kiwibank gaining ground since its launch, the Credit Unions seeking to create a very competitive and compelling “Customer Owned Banking” identity, and the truly dreadful advertising conducted by pretty much all of the big four, you’d be excused for thinking the traditional banks were in trouble.
The reality is, of course, they are nowhere near being in trouble – at least financially - with each recording huge profits in this last financial year.
But there is an ominous trend emerging within the corporate banking culture to believe in their immunity from market forces and consumer sovereignty.
The recent attitudes being displayed by Sovereign and OnePath - both owned by major banking corporations - toward non-aligned adviser distribution has seen their new business market share of this channel dive over the last 3 years. The arrogance and disdain meted out to independent financial advisers is now the stuff of conventional wisdom, and opens the door for Fidelity, Asteron, and others to provide support and gain rewards from financial advisers in this space.
From a consumers’ perspective, they will likely be provided with plenty evidence from financial advisers why they shouldn’t deal with a traditional bank for anything other than traditional banking products.
However, even in the traditional product space, the momentum of the compelling messages from non-traditional banks such as Kiwibank, Co-operative Bank, Taranaki Savings Bank, non-bank lending sources, and the growing presence of Credit Unions, is increasing apace. The big four may need to embark on something more substantial than block adverts featuring character actors delivering unconvincing messages to counter the threat to their market dominance.
I’d comfortably assert that every eligible New Zealander would have at least one horror story to recount about an experience with one or more of the big four banks, and despite the natural inertia which pervades the population at large with regard to financial services, I’d urge caution in senior banking levels about complacency, and taking consumer resistance to change for granted – particularly in this age of instant and mass communication.